If you’ve got a smartphone and a checking account, you might have used RDC to deposit a check. RDC — Remote Deposit Capture — is the technology banks use to turn images of your checks into funds in your account. BankSimple will offer RDC to all its customers and we’d like to let you know exactly how it works.
Flying Paper Checks
Until computers were part of the banking landscape, all checks were cashed by physically moving the slips of paper between banks. When electronic records became available, banks began recording check transactions on magnetic tape and then physically moving the magnetic tapes. When you deposit a check by delivering it to a bank teller or placing it in an ATM, the bank transfers all the payer’s routing and account numbers and the amount of the transaction to one of the check clearing houses for processing.
Check 21 and You
The Check Clearing for the 21st Century Act, or Check 21, is a public law passed in 2004. Check 21 stipulates that images of checks are legally the same as paper checks, allowing banks to transfer digital images, and eliminating the legal requirement to store and transport paper checks. It also means that customers may deposit checks by presenting an image. Businesses have taken advantage of this by purchasing scanners and software to submit checks en masse, and many banks have developed web and mobile apps for individual customers. Whether or not you actively or intentionally use RDC, merchants and banks are permitted to convert your check as long as they provide notice.
When you deposit checks by smartphone, the process by which funds get transferred to your account is essentially the same as if you’d deposited the check at a branch location. The numbers printed at the bottom of every check are printed with magnetic ink to help scanners read them, and in a typeface that’s designed to very specific standards for character recognition. Your bank reads the routing and account numbers from the picture you upload with your phone in order to complete the transfer.
Deposit Your Money Faster
Of course, Check 21 and new methods of depositing checks have a few implications beyond your convenience. Since banks are no longer required to physically move paper checks, check clearing won’t necessarily be affected in the event of an emergency; delays in banking after the 9/11 attacks provided a significant argument for passing Check 21. And, when it comes to your own day-to-day banking, you may have noticed that checks deposited from your phone tend to clear faster than checks left at the bank. As bank systems become more sophisticated and more people adopt RDC, checks will clear faster and faster. That’s great news for the payee, but maybe not such great news for the payer, who may have expected a couple days of lag time before the charge hits his or her account. A paper written for the Richmond Federal Reserve Board (PDF) also describes a scenario in which customers in rural or under-served areas may have more choices for banking if they can deposit checks remotely. These developments stand to alter the banking landscape, but will require adoption of RDC by banks, adoption of the appropriate technology by consumers, and availability of high-speed data connections across the country.
In future blog posts, we’ll get into more detail about the differences between check transactions and debit card transactions, and how these differences affect the amount of time it takes for a charge to clear. With Check 21, the banking industry has made checking relevant and adaptable to new technologies, so we’ll be keeping an eye on how check clearing houses deal with wider adoption of RDC.